Is There A Significant Health Insurance Rate Increase In Your Future? In the past seven years since the Affordable Care Act (ACA) was passed as federal statute and we began to try to reform our healthcare system, I have not seen much evidence of reformation, besides a state of constant change. As a healthcare professional who has been involved in the employer group health insurance market for more than 30 years, I look back with fondness over the first 15 years of my career, when the worst thing that was happening was significantly increasing health insurance premiums. I say "with fondness" because at least then we had some understanding of why costs were increasing. More treatments and new prescription drug therapies were coming along to cure horrible diseases; these therapies were expensive but they did miraculous things to improve the quality of life for very ill people. My clients, employers with employees who they cared about, were willing to spend more on premiums because they felt like it was the right thing to do and we all knew people who literally were being saved by the care they got. In my earliest insurance career, I worked with small to medium-sized businesses in the Midwest. Most had fully insured health plans that paid 80 percent and sometimes even 100 percent of their employee's health care expenses after a modest deductible of $100 – $200 per year. By the year 2000, the large national health insurer I was working for was delivering, on average, 15 percent rate increases. My clients had to begin to reduce benefits to be able to afford health insurance for their employees. Cost-sharing became the topic I discussed the most frequently. Today, not even two decades later, we look at plan options that don't resemble at all what I used to explain to my clients, their employees, or their families. This month Aureon HR delivered proposals to two prospective co-employers who had received health plan renewals. One had received a 15 percent rate increase and the other an 18 percent increase. Last week, a representative of a large group health insurance carrier told me he was routinely delivering 30 percent health plan rate increases to small to medium-sized employers this year. He also shared with me a bigger picture of having given a six percent rate increase in June to his company's largest Professional Employer Organization (PEO) pooled plan. That pool had approximately 500 covered employees. Flashback to June of 1999, where I testified before the House Small Business Committee in Washington, D.C. in support of federal legislation that would allow employees working for small to medium-sized businesses to have access to more affordable health insurance, by enabling the formation of associations of employers for the purpose of purchasing health insurance. It seems some things come full circle, as today I am the Vice President of Benefits for Aureon HR, and I know full well the value that purchasing health insurance as a member of a well-managed pool of employers can provide. I see it every day. Small to Medium-Sized Businesses are More Vulnerable to Unpredictable Rate Increases The majority of the people in the U.S. work for large employers. According to U.S. Census Bureau data, employer firms with fewer than 500 workers employed 47.8 percent of the working aged population, although small businesses represent 99.7 percent of all employers. The other .3 percent of employers who employ slightly more than 50 percent of the country's employees (large employers) have a significant advantage over the 99.7 percent of small businesses because of their size. Big businesses are expecting to see a five percent increase in their premium in 2017, according to a survey from the National Business Group on Health (NBGH). The NBGH is a nonprofit organization made up of 425 large employers and the survey contains data from 133 of these big businesses, which employ and sponsor health benefits to more than 15 million Americans. Five percent is much more reasonable than 15 percent or 18 percent (although still significantly higher than the average rate of wage increases). The fact is that large employers have some advantages when it comes to providing insurance. Their sheer size gives them a stronger bargaining position and the changes they make to their employees’ insurance plans and medical networks have a larger impact on their health care spending. Big firms can take health care cost increases into their own hands and take measures to tackle growing costs. For instance, the NBGH survey found that 90 percent of its large employer member companies will increase the availability of telemedicine services that are cheaper than a traditional trip to the doctor's office and will contract with a narrower network of health care providers. The Law of Large Numbers When I first started my career in health insurance I had the "law of large numbers" explained to me by a very patient health insurance underwriter who was tired of me arguing that my 50-life employer group did not "deserve" such a large rate increase. He told me that the law of large numbers is a fundamental concept in statistics and probability that describes how the average of a randomly selected large sample from a population is likely to be close to the average of the whole population. The law of large numbers basically relies on the principle that the larger the pool, the more predictable the amount of losses will be in a given period. Since not all members of the pool are the same age or in the same health condition, we can assume not all of them will be making a claim at the same time. My underwriter/teacher told me that the smaller the group of employees being underwritten, the lower the confidence factor would be that the premium rate the numbers said they deserved would be reliable, so insurance carriers give a margin for the uncertainty of smaller employer groups. When a pool reaches the point of 1,000 or more "belly buttons" (covered employees, spouses, and children combined), the underwriters lower or even eliminate the credibility buffer, and the employer or, in my case, PEO, can begin to negotiate purely on the factors directly affecting premiums: actual claims, number and nature of high risk claims, trends in health care, and the demographics (age, gender, and location) of the people covered by the plan. The bigger the pool of participants gets, assuming the PEO manages the plan and does preliminary risk assessments so it doesn't take on any "known catastrophic" risk, the more stable the premium rates will be. Small and even medium-sized businesses will not experience this stability. The law of large numbers just isn't working in their favor. The Future of Small Group Health Insurance? Today, in 2017, I see and experience the "power of the pool" for small groups every day. As I hear from small business owners and their brokers about the challenges of a traditional small group health insurance, the primary challenge is cost. There is no bargain health insurance plan. However, large employer pool plans are substantially more stable and, in some cases, considerably less expensive then what a small to medium-sized employer can purchase on its own. Joining a pool for health insurance has become significantly more traditional for small employers today than it was when I petitioned the federal government in 1999. While federal legislation allowing pools to form, be self-insured, and not governed by a web of state laws never was passed, PEOs, co-ops, and regional association health plans have become a source of competitively priced, stable premium rates. Many of these plans are large enough to warrant a team of insurance professionals and consultants to monitor the benefits they offer and the networks they access to make sure everything is working to keep the costs as controlled as possible. PEO insurance pools are considered by the insurance carriers to be like a single large employer plan. The pool has increased buying power and spreads the risk to a large group of employees. These pools frequently offer better insurance rates and coverage than the small group could get on the open market, although the ability to do that in every case depends in part on regional insurance underwriting laws. I still argue that PEOs are disadvantaged over similar-sized large single employers, because many states preclude PEOs from self-insuring any aspect of the health plan's risk, something that large employers regularly do, which saves them from paying taxes and allows them to negotiate fixed costs of health insurance more aggressively than PEOs can. I will put my voice together with the voices of other PEO executives to try to secure that right for PEOs. I also can and do provide a defense for small to medium-sized employers against unpredictable and potentially catastrophic increases in health care premium costs. It’s not the only advantage for an employer to consider using a PEO, but it’s an advantage that I think small to medium-sized employers should consider. From 2000 to 2006, the average family premium increased 58 percent. Where are we headed in 2017 and beyond? The answer depends on who you talk to. One insurance broker I spoke with this year said he is seeing health premium increases "all over the map". The ACA has affected many insurance carriers in many different ways. The only thing that seems certain is more change is on the way. No PEO plan, regardless of its size, can promise no rate increase, but it can say, with confidence, that you have a better chance of the increase being one you can budget for if you have the power of the PEO pool working for you. What goes around, comes around, once again I am advocating for the importance of small to medium-sized employers to pool together to provide stable insurance costs for themselves and their employees, now I am doing it from the office of a benefit center of a PEO. Health insurance is complicated, but you can get help. What is your organization's plan for health insurance this year? Pat Gagne Pat Gagne, FLMI, Vice President of Benefits for Aureon HR, brings more than 35 years of experience in the field of employer group insurance benefits to Aureon HR's team. Having owned and run a small Iowa-based employer for 25 years prior to joining Aureon HR, Pat brings a small employer's perspective on benefit plans, compliance issues and customer service.